4 TYPES AND FORMS OF ENTERPRISE IN BUSINESS
Business derive their existence from possessing the ability and wherewithal to provide solutions to the needs and wants of society, in the most cost effective and timely means permissible, for profit or not. Agglomeration of these concerns saddled with this responsibility are termed enterprises.
Terms used to delineate and classify enterprises include but are not limited to, formal, informal, private, public, individual, corporate among others. These concerns or enterprises attain success only to the extent that they are able to satisfy these needs and wants, in innovative and sustainable ways, for profit or a sense of fulfillment.
The general forms of business enterprises, which are actively observed in many parts of the world include Sole proprietorship, Partnership, Limited Liability Companies (LLC) and the corporation (PLC).
Each enterprise form has pros and cons, viewed in terms of structural complexity, ease of registration and start-up, cost of running operations, extent of personal and group liability, taxation obligations as well as assets and liability declarations.
It must also be noted some basic types and forms of enterprise in business have sub-divisions like in the corporations that are further classified as S-corporations, C-corporations and professional corporations.
For all the above mentioned enterprise forms; there exists three elements of interest, that must be distributed among these general types and forms of enterprise in business. These elements are risk, management and income.
Selecting the appropriate types and forms of enterprise in business will require a careful and thorough consideration of these underlining factors.
What are The Common Types and Forms of Enterprise in Business?
Sole proprietorship is the most basic form, in which individuals can start and own a business. All the elements of business are borne by the sole owner.
At its most rudimentary, a sole proprietorship is a pseudo legal status. It rather refers to an individual that owns/runs the business and bears full responsibility for its funding and whatever debts/liabilities the business incurs.
A sole proprietorship can operate under the name of its owner or choose a pseudo name, which
can be viewed as a trade name. A sole proprietorship enjoys huge popularity and patronage due to the simplified registration, ease of start-up and minimal cost of start-up. An important disadvantage of sole proprietorship is the owner is not distinguishable from the business and hence can be sued and made to pay for all the debts/liabilities incurred by the sole proprietorship.
A partnership is said to exist when two or more persons mutually agree to operate/run a business for profit. The enabling law for partnerships goes thus: ” the association or collaboration of two or more people to form, run and operate a business for profit will be deemed a partnership, irrespective of whether the involved parties intend to partner or not.” Partnership also enjoy greater attraction because it offers a certain degree of flexibility and ease in operations. Certain popular forms of partnership can also offer some form of protection from liability.
Under the partnership model, all the partners act like one body, undertaking the inherent risks of the business, running the operations of the business and sharing the income in agreed portions. Extending this further, any number of work combinations could see one partner provide the initial capital, another could bring his wealth of management experience to bear in running the business from day to day, while another could provide legal representation.
Although partnerships could be orally agreed and be recognized by Law, it is expedient that potential partners have written and signed contractual terms, usually subsumed in the Article or Deed of partnership. A big plus of starting a partnership is its ease of establishment, with minimal start-up cost. However, a major achilles heels of this type of enterprise is that the partners face the risk of unlimited financial liabilities in cases where the business fails, especially in off setting debts and liabilities.
Limited Liability Company
These new form of business enterprise can be said to be an offshoot of the traditional partnership; the telling difference being that an LLC confers on the founding partners, limited liability in times when the business experiences liquidation.
The term corporation is a derivative of the Latin word corpus, which means body. A corporation is a legal body- an impersonal one, conferred with the right to own buy and sell property, sue and be sued, take loans and undertaken any other activity within the gambit of the Law. A most notable feature, which also doubles as an advantage, is that a body corporate protects its owners from personal liability in regard to debts and liabilities owed by it-to a certain extent.
Another notable feature of a corporation is that its existence is perpetual; shareholders can relinquish or sell their holdings or shares in the corporation, to others, who then become part owners of the business.
A corporation is owned by a body of shareholders, overseen by a body of directors and run by elected officers. In addition, corporations are mandated by law to hold periodic share holders’ meetings and to make filings of financial information at specified intervals. A major con with many types and forms of enterprise in business is the capital required to start up the business.